PETALING JAYA: With targeted diesel subsidies set to roll out in the second quarter, Petronas Dagangan Bhd
’s (PetDag) system is prepared for the implementation which will be fleet card-based.
Following a meeting with PetDag’s management, Kenanga Research said the retail arm of national oil company Petroliam Nasional Bhd does not expect the subsidy rationalisation to hit its diesel-sales volumes.
This is based on the fact that diesel is an essential fuel item.
“This is also evident from historical data during the floating of petrol and diesel prices in 2019, which showed no material impact on PetDag’s retail sales volumes,” the research house said in a note.
Two weeks ago, the Domestic Trade and Cost of Living Ministry said it will implement the Diesel Subsidy Control System 2.0 (DSCS 2.0) via fleet cards.
“The companies involved may apply for their quotas through the MySubsidi Diesel KPDN System and then proceed to apply for the fleet card from their preferred diesel company,” the ministry said in a statement on Jan 9.
Looking ahead, Kenanga Research said it was “largely neutral” on PetDag’s near-term prospects.
“We like PetDag due to its highly cash generative business that translates to high capacity to pay dividends, its strong balance sheet with a sizeable war chest of RM2.8bil, and growing Café Mesra convenience division’s revenue on stronger demand.
“However, we are concerned over the long-term prospects of its retail business on the back of electric vehicle (EV) adoption,” the research house said.
The research house noted that PetDag does not expect a substantial earnings contribution from EV charging in its financial year 2024, given the early stage of the EV market.
It added that conversion of alternating current (AC) chargers to direct current (DC) chargers is underway to decrease the average charging time for EV users.
“With 20 available AC charger stations, PetDag’s partner, Gentari, will increase capacity in the coming years.
“PetDag will earn income through fees paid by Gentari or profit-sharing arrangements, with no direct operation of the charging stations.”
Regarding Café Mesra, Kenanga Research pointed out that PetDag added 60 more outlets in 2023, including kiosks, in Peninsular Malaysia, bringing the total to 100.
Looking forward, PetDag will grow the franchise at a more measured pace amid soft market conditions.
“An interesting point to note is the stand-alone cafes (those not attached to its petrol stations, but located in shopping malls, office buildings, train stations and terminals) are doing even better given higher foot traffic.
“Nonetheless, Café Mesra’s contribution to its convenience division revenue remains insignificant at present,” said Kenanga Research.
The research house has maintained its “market perform” call on PetDag, with an unchanged target of RM22.40 per share.
Earnings forecasts have also been maintained.
“Risks to our call include volatility in its product prices, translating to volatility in margins, a slowdown in the domestic economy, resulting in lower demand for fuels, and a slowdown in the air travel segment, resulting in lower demand for jet fuel,” the research house added.
